'Roboburgh' Rising

ALLENTOWN, Pa. -- The next round in the Democratic Party's presidential slugfest will be fought April 22 in Pennsylvania's "rust belt," in places like this old manufacturing city on the Lehigh River. And given the mounting economic worries here and across the country, Barack Obama and Hillary Clinton will be talking about the future more as a threat than as an opportunity.

But such radical pessimism about the U.S. economy is a mistake, at least over the long run -- and there's no state in the country that proves the optimists' case about America better than Pennsylvania.

Obama and Clinton have been taking turns trashing the North American Free Trade Agreement, a symbol of the forces of globalization that have transformed Pennsylvania's economy. They would be wiser if they embraced the economic policies of another politician named Clinton, who spoke in his 1996 reelection campaign about "building a bridge to the 21st century."

I got my start as a journalist in the Keystone state back in 1976, covering the steel industry for the Wall Street Journal. That was a period when this state's manufacturing industries were beginning what proved to be a convulsive shakeout. The United Steelworkers union and the big steel companies joined forces in a no-strike pact known as the Experimental Negotiating Agreement, which tried to protect the industry's high wages and benefits by blocking foreign competition.

This campaign for protectionism failed, and employment in the American steel industry fell from 521,000 in 1974 to 151,000 in 2000. The global shakeout was even more severe, with bigger percentage drops in steel employment in Germany, France and Britain. It was a savage process in which more than 30 U.S. steel companies went bankrupt and a great industrial union was decimated. Working in Pittsburgh in the late-1970s, I heard people talk as if any hope of future prosperity would disappear once the mills and blast furnaces closed.

But if ever there were a case that documents what the economist Joseph Schumpeter described as "creative destruction," it's what happened in Pennsylvania. Steel and other manufacturing industries were indeed shattered by competition from the globalized economy that was just emerging. But new industries that nobody could then have imagined took their place, and they provided new jobs, year after year.

Employment in Pennsylvania reached an all-time high in January and then fell slightly in February. People here fear that a steep recession may be coming. But as of February, unemployment in the state was just 4.9 percent. Since January 2003, Pennsylvania has added 178,000 new jobs, according to the state government.

Where are all these new jobs coming from? The answer is that as the old rust-belt manufacturing industries sank, Pennsylvania became a platform for innovators in technology, finance and the health industry. What saved the state, above all, was its concentration of great universities, which provided the human capital for growth.

Pittsburgh is probably the best example of this transformation. The lamentations of 1976 were real, and the old version of the Steel City is gone forever. What emerged was a new economy built around the knowledge base of Carnegie Mellon University and the University of Pittsburgh. Carnegie Mellon was the nation's leader in robotics, giving rise to companies with names such as Applied Perception Inc. and to the National Center for Defense Robotics. By 1999, an article in the Wall Street Journal said the city should be renamed "Roboburgh," and the Journal called rust-belt Pittsburgh one of the country's 10 hotbeds of technology.

A glimpse of Pennsylvania's future comes from statistics gathered by the state's Department of Labor and Industry. It forecasts that by 2014, jobs in Pennsylvania will increase overall by 6.8 percent. But manufacturing jobs will decline by 19.5 percent, including a further 22 percent drop in the iron and steel sector, a 25 percent decline in motor-vehicle parts and a 21 percent fall in industrial machinery.

As recession hits the U.S. economy this spring, it will test the country's confidence in the future. But as Obama and Clinton make their swings through Pennsylvania, they should remember that this state is truly a laboratory for change.